Electrocomponents plc, the world's leading high service distributor of electronics and maintenance products through its brands of RS Components and Allied Electronics, today issued a trading update for the year ending 31 March 2014 ahead of publishing full-year results on 22 May 2014. RS is the leading distributor in the UK, Europe and Asia Pacific, while Allied is ranked third in North America.
In the trading update they reported stronger Q4 sales growth of 4% overall with international operations stronger with 6% growth while the UK was flat. Their on line sales continued to grow more rapidly at 7% and now represent 59% of total sales.
For the year this meant their sales were up by 2% overall with international again leading the way. As expected, the Group gross margin remained stable during the year and operating costs have been tightly controlled. They expect Group headline profit before tax for the full year will be in line with market expectations. So all pretty much as expected.
Ian Mason, Group Chief Executive, commented: "Group sales growth in the final quarter was 4%. Sales trends across our International business, which has grown to comprise over 70% of Group sales, have gradually improved as the year has progressed. This partly reflects the improvement in manufacturing Purchasing Managers Indices during the year, but we also believe that our International sales growth reflects share gains from our numerous smaller competitors."
So an in line trading update for the year, but that's better than a profits warning. So where does that leave these shares. Well for the year they have just told us about it trades on around 18x, which is not that cheap, with the main attraction being the 4.1% yield on the forecast unchanged dividend on 11.8 pence which is only forecast to be about 1.4x covered by earnings. Aside from that it has reasonable mid teens ROE and ROCE and makes operating margins of around 8 to 9%, so reasonable quality I would say. The balance sheet carries some debt, around £150 million at the half way stage, or 1.1x EBITDA and EBITA interest cover of 22.2x, so not that stretched given the strong cash flow from this one.
On balance, steady as she goes and nothing to get excited or worried about either way, apart from perhaps the sluggish growth and fairly full rating. I do however like the quality of this one, so probably happy to hold it as part of a diversified income portfolio. However, having said that I could not honestly say you should buy it and in fact having revisited it myself I might even use it as a source of funds if I can find a more attractive home for my money going forward.